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Equity Tokens

Harrison Hines, Ayesha Kiani, Ronald D. Miller,
Gregory Keough & Nikhil Kalghatgi


 
Ayesha Kiani - Managing Director at Republic Crypto

Ayesha Kiani

Managing Director at Republic Crypto

Ayesha Kiani is the Managing Director at Republic Crypto - a trusted presale token fundraising platform for all types of investors. She was previously at SingularDTV, a Consensys spoke. She's a Venture Partner at NextGen Ventures and a Board Member for Ventures for America. She has a Bachelors in Finance from Stern and JD from NYU Law School. She previously worked at Skadden.

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Ronald D. Miller - Chairman of StartEngine

Ronald D. Miller

Chairman of StartEngine

Ronald D. Miller is an entrepreneur’s entrepreneur having visualized, founded, built and sold five companies through management buyouts, private equity firms, private investors and public markets.

Currently, Ron is the Chairman of StartEngine, one of the industry’s leading equity crowdfunding platforms. At StartEngine, his mission is to help entrepreneurs realize their dreams. StartEngine has over 150,000 registered investors on the platform.

In addition to his Chairmanship of StartEngine, Ron is actively engaged as a partner/advisor in several start up and growth companies both in and out of the tech sector.

Ron also serves as an instructor for courses at the UCLA Anderson School of Business/Price Center for Entrepreneurship. In the past, Ron has taught innovative courses as at the University of California Riverside, University of California San Diego and the University of Wisconsin at Madison.

Over the past 25 years, Ron has accumulated a wealth of experience in building, leading and empowering executives and teams to deliver extraordinary results. His rich mix of marketing, sales, IT, operations and financial experience has enabled him to see things others do not. He has an extensive track record of visualizing the strategic picture, defining opportunities and producing measurable results through disciplined and documented systems.

Ron’s success has been publicly recognized as a four time INC 500/5000 Award recipient and as an Ernst & Young Entrepreneur of The Year Award Finalist. He also owns the trademark for “Doing Well by Doing Good TM.”

Ron also serves as a board member to YPO Angeleno, USC Grief School of Entrepreneurship, West Coast Care and several for profit corporations. Ron founded the San Diego Chapter of the Entrepreneurs Organization (EO). Ron is a member of the CNBC-YPO Chief Executive Network and the LA Mayor's Council on Technology and Innovation.

Ron has also served as a legislative intern in the US Senate and the British House of Commons.

With the continuing success of his companies, Ron has been featured in publications such as the Washington Post , Forbes, Los Angeles Times, CBS, INC, Chicago Tribune, The New York Times and Entrepreneur Magazine . Ron lives in Santa Monica, California with his wife and two children.

Ron received his BA in Business Administration with distinction from Michigan State University – Broad College of Business and proceeded to earn his Juris Doctorate from the University of Detroit School of Law. He is an active member of the California and Michigan Bar Associations.

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StartEngine - Gold Corporate Member

StartEngine is a leading security offering platform that tokenizes securities for more efficient issuance and trading. Utilizing its expertise in regulated exempt offerings under the Securities Act, StartEngine has helped more than 160 companies raise capital and has over 150,000 registered prospective investors. Based in Los Angeles, the company was created in 2014 by Howard Marks, co-founder of Activision, and Ron Miller. StartEngine is committed to revolutionizing the ways companies raise capital and to helping entrepreneurs achieve their dreams. StartEngine Crowdfunding is a not a broker-dealer, funding portal or investment adviser. StartEngine Capital, LLC is a funding portal registered with the US Securities and Exchange Commission (SEC) and a member of the Financial Industry Regulatory Authority (FINRA).

 
Gregory Keough - Founder, Institute for Blockchain Innovation (IBI) & CEO, Finova Financial

Gregory Keough

Founder, Institute for Blockchain Innovation (IBI) & CEO, Finova Financial

Mr. Keough is founder of the IBI and a pioneer in the Security Token Industry. Keough is a sought-after speaker and a leader in using the blockchain in the tokenization of assets. Mr. Keough is the creator of the JOBS Crypto Offering (JCO) a compliant open source initiative to raising capital on the blockchain.

As CEO of Finova Financial, Keough has raised over $100M from Silicon Valley VCs and private equity firms and driven the company’s mission to transform the future of global banking through the creation of fair and affordable digital financial services for consumers outside of formal financial systems.

Finova is now working to transform the traditional capital raising process through the creation of digital equity securities (equity tokens) to be traded in cryptocurrency on the blockchain through the JOBS Crypto Offering (JCO) backed by numerous pioneers in the blockchain and crypto space.

Keough is a serial entrepreneur who previously served as CEO of a MasterCard Telefonica joint venture for global Mobile Financial Services, and over the last 20 years was founder and CEO of multiple venture-backed companies going back to the early days of the internet.

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Transcript


 

Nikhil Kalghatgi:

We’re going to keep this a little bit high energy, I hope. My name is Nikhil Kalghatgi. I’m the head of CoVenture Crypto. We are a diversified asset management firm, but enough about me. If you want to talk crypto and investing into it and all that kind of stuff, my vanity is an easy way, so just take a picture of us and hit us on Twitter. It’s an easy way to get in touch with us. So, I just wanted to very quickly introduce our topic and our lovely panelists. We’re talking equity tokens specifically, that vertical within security tokens, and we’ve got an amazing group. Just to make this very easy, please, would you four introduce yourselves, and in one sentence, just say your name, your title, and what you do with respect to security tokens, equity tokens.

Harrison Hines:

I’m Harrison Hines, founder of Token Foundry. We are the advisory arm of ConsenSys, so we help projects do utility tokens, security tokens, asset-backed tokens, and non-fungible tokens.

Greg Keough:

Greg Keough, CEO of Finova Financial. We’re a venture-backed growth stage company that developed a process called the Jobs Crypto Offering, or JCO, looking to have a regulatory framework around the ICO, but in a regulatory-compliant way.

Ayesha Kiani:

Hi. I’m Ayesha Kiani. I am a manager director at Republic Crypto. It’s a crowdfunding platform where companies can raise from their retail investors. As more and more token sales start taking place, we would see a rise of equity raises, so we’re setting up platforms for that, and yeah.

Nikhil Kalghatgi:

Great. Thank you.

Ron Miller:

I’m Ron Miller, and the chairman of StartEngine, and we’re the leading equity crowdfunding platform, and we’re moving into the security token space.

Nikhil Kalghatgi:

There you go. So, you’ve got principal investors, issuers, or sorry, advisors, issuers, crowdfunding on the end as well, so you got kind of a good mix, I think, to talk about. Okay. So, what honestly is ... This is to you, Harrison, because you’re close to me. What pisses you off about the security token scenario right now, particularly around equity tokens?

Harrison Hines:

Sure. I get a bit frustrated because I think people are jumping the gun. I don’t believe that you could issue an equity token today and be confident that you’re not putting the issuer at risk of potentially getting into regulatory gray areas or trouble down the road or being able to be confident that they could remain in compliance with the law. So, I think we saw it with utility tokens. Obviously, there’s a lot of money to be made, and people are excited and issuing security tokens or equity tokens now, but I just think it’s going to make it harder for the people who are being patient and waiting for there to be a framework for how to do this from pre-issuance to secondary trading compliantly, so that pisses me off a little bit.

Nikhil Kalghatgi:

So, let’s turn this into a little game. You just inspired me. Let’s take Ron and Harrison, and you guys are going to play the downside, the bear case of equity tokens, and then Ayesha and Greg, I’d love for you to take the upside, the bull case. Okay? Are you guys willing to play this?

Ayesha Kiani:

Yes.

Greg Keough:

Sure.

Nikhil Kalghatgi:

All right. Okay. Ron, hit us with it. What’s the downside? Tell us how this thing goes to hell in a hand basket, with respect to equity tokens?

Ron Miller:

Yeah. I think there’s three words here, Nikhil. I think it’s disgorgement, penalties, and my favorite, jail. So, to put it simply, I think to some degree, what Harrison pointed out is that if you’re not careful, if you’re listening to the wrong people, and in some cases, what appears to be right people may not be right people. In other words, there’s been some bad advice given by very, very reputable law firms, even, that have given advice, which turns out later not to be such good advice.

That ultimately can lead to a lot of trouble, and what happens, of course, is that when an entrepreneur that’s got an idea that’s going to change the world somehow engages in this process of raising capital, their job remains to be the founder that’s driving their innovation forward. Raising capital is just one of those things. Now, that’s all good until it’s not, which means that when they hit the proverbial wall of regulatory violation and they get into that thing, that is the end of their attention on any of the multitude of things that a founder typically needs to pay attention to, and instead gets completely dragged into the regulatory defense process.

Nikhil Kalghatgi:

So, get good lawyers is the solution?

Ron Miller:

It’s more than lawyers. Okay? I think lawyers are a great start, but you’re going to need a great team, and that team consists of, I think, people that are going to be involved in promoting the raise that have respect for what the lawyers are saying, because too many times, I know that if there’s lawyers out here in the audience or on the panel here, you’ve seen where advice is given, but if you have the wrong culture in your organization and it’s being managed or led by people who are trying to skirt the rules, I think you end up with what Harrison talked about. It looks like jumping the gun, and someone’s getting in trouble. To that end, the entrepreneur’s dreams just fizzle.

Nikhil Kalghatgi:

Greg, can you take us to the counter?

Greg Keough:

Yeah. So, I think that those are definitely challenges. With that said, I think that if you look at more mature companies, what’s happened is the bar to do this has went way, way up. Right? So, if you previously with an ICO, and I concur, most of those actually concur with the SEC, which was incredibly unpopular a year-and-a-half ago when this industry was getting formed, that most of these things, they were either equities or they were securities and they needed to be regulated, but I think if you look at ... So, the skillset was a white paper and some guys in a garage figuring out a clever idea. Right? So, that was it. That bar is pretty low.

I think you’re moving in the security token space to a much higher barrier, but also a much greater reward for the investor, and so I think if you look it, great point, you need to understand regulation, compliance. You actually probably have to have departments in your company that so that. So, Finova, for example, we were a good case for this because we’ve raised over a hundred million dollars in venture capital from Silicon Valley. 500 Startups was an early investor. We have private equity money. CoVenture actually got the is an investor, and we’ve been operating for two-and-a-half years, and basically, we are a lender. So, we’re an online lender for kind of the un-banked.

So, as that, we have lending licenses. We have to file reports on those lending licenses. So, you have to have an infrastructure in place, I think, to do this that’s a lot more advanced. With that said ... So, that’s the downside from an entrepreneur’s perspective. The upside is I think there’s an incredible appetite, and this, as we all hear, believed a multi-trillion-dollar change, and we are very, very much at the very beginning of this, but it is a much higher bar than it used to be, but I see that as a good thing for investors and funds and those with the fiduciary responsibility to invest.

Nikhil Kalghatgi:

Okay. So, Ayesha, if we’re not going to jail anymore, all right, we’ve got good lawyers, got it, we’ve got good culture, like you said, it comes from the top, comes from inside, we know the teams on a good page, we’ve got a good idea, we’ve got some good funding, take us through the next steps over the next two or three years through to the trillion-dollar market. What has to happen? What are the step functions, the big marquee events, one or two marquee events that have to happen that you think would get us to a trillion-dollar situation?

Ayesha Kiani:

So, I think in my personal opinion, asset tokens will take over stocks, and the reason I say that is because from Republic’s perspective, the company has been around for two years. Our equity side, anyone, any good company can come and raise from their crowd, and under a Reg CF offering, you can do 1.07 million dollars. It may increase in a couple of months down the lane. We’ve used the same model for blockchain and crypto companies. With A+ coming into play, a huge play just comes into play. Now, the thing is the same people that are investing in the company, they will have an asset. They will have the ownership into each and every company. That kind of gives the companies a lot more liquidity, a lot more capital to bank on.

The other thing is, no offense to any of these rights here, but raising from the crowd or raising from your general masses kind of goes against the traditional VC model. Right? So, that’s where we think asset tokenization could be a greater thing for all the emerging companies. Different ATS are coming into play, which will let a lot of different security tokens just to be tradable. The other thing interoperability. Me giving you a token for your Ferrari is a lot easier than me signing 300 different forms and waiting three months for the SEC approval for this stock’s liquidation to make sure the funds are transferred. So, I think that’s where the huge upside is for the asset tokenization.

Nikhil Kalghatgi:

So, just taking that and bringing it to the traditional world, does that mean there’s some sort of mixture of these assets on a single platform? Do you see tokenization of public equity being traded on a security token exchange?

Ayesha Kiani:

So, currently right now on Republic’s platform, there is a healthcare company that has been around for almost five years or so, and they decided to go blockchain route, and the first thing that they did was-

Nikhil Kalghatgi:

Was that a publicly traded company, or was that a private company?

Ayesha Kiani:

It’s not a publicly traded company. It’s private, but they’ve issued tokens. Labdoor is the company’s name on our platform they’re raising as test. They wanted to give it back to the community. They had a huge community. They wanted to issue it back as tokens. They do have an entire process set up on how they’re looking to implement blockchain into the multivitamin thing. So, yes, we’ve started looking into it. We will help it as more and more dialogue come into play, but yeah.

Nikhil Kalghatgi:

So, I like playing the good guy, bad guy sort of thing, and I’ll be the bad guy because that’s a lot easier for these wonderful panelists, to be the good guy. So, is there just this pile of liquidity at the end of the rainbow when we want to tokenize this equity?

Ayesha Kiani:

Yeah.

Harrison Hines:

I would say-

Nikhil Kalghatgi:

Harrison, you were about to jump in there.

Harrison Hines:

I would say I’d skeptical. I mean, a tokenized equity or securities are just the digital representation of the underlying asset. I think people are a bit, let’s say, overconfident. At the end of the day, you’re still raising money for an investment opportunity or something. There’s got to be someone who wants it. Do I think a token adding easier liquidity to get in and out of these positions and not be so locked in creates or makes them more appealing? Yes, but there’s a lot of groups out there or projects that say they’re going to raise a hundred million or are going to do all sorts of crazy things, and it’s very easy to claim you’re going to go and raise that money. I’m skeptical that any meaningful percentage of those projects who hear the word token and then immediately get irrational about their terms or their valuation or how much money they need, I think they’re going to be in for a disappointing trek.

Nikhil Kalghatgi:

Okay. So, I want to marry the two points that were made, and I need you guys to help me with that. So, the first point is that there’s this trillion-dollar opportunity over there, and that there’s a whole bunch of liquidity if we can just convince people to educate themselves, and we can actually transact. For example, if you can have a smart contract that you could trust very easily, then all of a sudden there’s people that can easily buy that Ferrari or a fraction of that Ferrari, as an example.

Even further to that people, I’ve got several funds. I used to be a VC at SoftBank for many years, and I can tell you that companies are staying private longer. We’ve had the same 10 plus one plus one fund structure in private equity for, I don’t know, 40, 50 years. I don’t actually know when it was invented, but it’s been a long time, and that’s not great from a fundraising perspective. Those two things are obviously at tension with each other. So, clearly an alternative would be better. It would be fantastic if the entire world of private equity could sell its shares of its funds in secondaries much easier than the very nascent market that exists today for that.

So, there’s a lot of incentive for people to want it, to create an environment for people to want to buy these sorts of things. So, how do we get from here, knowing there’s a problem, knowing people are incentivized, to where there is people that are educated, where we have trust in selling these secondaries and don’t have to go through 300 pages and 1.5 years of soliciting with lawyers. How do we get there?

Greg Keough:

Well, I think the end token, to Harrison’s point, is if you’re building a token that doesn’t have any ... You have to know why you’re doing it, right? So, in the case of Finova, we have a very high yield business, and it’s also secured by assets. Right? So, we lend, and we lend against cars at a very good ratio, and we have very, very good return, and this has been proven over multiple years. So, my belief is, and this has been validated, globally there is a high appetite for, one, high yield, two, US-based, and three, asset-backed. That is the exact reason why Finova is doing this process that we’re doing. So, it’s very, very specific.

So, I know people in Japan who have zero yield would love to probably get out of their currency, get into a different country, but also have a dividend going out, and by the way, the dividend can come daily, weekly, et cetera, off assets secured in the United States at a good LTV. That’s the reason we’re doing it, but I think, to your point, every single person who’s doing this, it’s not just you click on equity token to whatever it is. There must be some reason why somebody would buy it, in my opinion, and so-

Ayesha Kiani:

So, yeah, to his point, we’re currently looking into a company that is tokenizing a real estate investment fund. Now, personally, would I love to jump on it? Absolutely. Why won’t I love to hold tokens to 10 different buildings around New York City. Right? Because if the company is providing me that, I would do it. I think, to Harrison’s point, the notion of some really crappy projects raising a hundred million dollars and not seeing the end of daylight, I think that era has kind of ended.

Greg Keough:

Yeah, we passed that.

Ayesha Kiani:

Now we’ve started seeing some really credible companies using blockchain and tokenization to their own advantage and to build out the future financial infrastructures. Every industry goes through a bad period and a good period. I’m not saying that there won’t be any shitty projects out there. There will be, probably, but I think we’ve crossed that path.

Nikhil Kalghatgi:

Okay. Without shilling our own portfolios, what is the equity token project that you are most excited about today?

Ayesha Kiani:

So, for instance, test Labdoor, the one that I mentioned that’s currently raising on Republic. Super excited for them. It’s our first case on how a company that has been around for a while decided to go blockchain and decided to give it back to the community.

Nikhil Kalghatgi:

All right. Ron?

Ron Miller:

Mine, without a doubt, would be tZERO, and the reason why I say that is, number one, it’s domestic, and secondly, they did it compliant with the US security regulations, and that is what ... When I look at that raise, that one is the example, in my book, about how it can be done consistent with the rules, and still generate an awful lot of investment, and do so in the right way.

Nikhil Kalghatgi:

Wow, and as far as the advisor in the room, you’ve looked at ... How many projects have you created now at Token Foundry, or working on?

Harrison Hines:

Like 15 right now.

Nikhil Kalghatgi:

15, okay. I know you can’t spill the beans on a lot of them, but maybe you can talk about some of them in abstract, ideas or other companies you’ve seen. What are some of the equity token concepts that you think will level up the entire industry?

Harrison Hines:

Sure. Well, I want to make a point that I think there’s a very clear distinction between utility or consumer tokens that might power a new decentralized network and security or equity tokens. So, equity tokens are nothing more than a digital representation of an underlying share or security in a company, but what’s really fascinating and what we are starting to do and look into is they don’t necessarily have to be plain vanilla equity tokens. You could have hybrid tokens. You can start to give these equity tokens use. So, they are a security. They do represent equity in a company, but maybe they could be converted into something else like a membership seat on an exchange, or maybe they could have different functionality.

What I think is really interesting is now with tokens, you don’t have to just limit it to straight equity. You could imagine a day where everything on a company’s balance sheet is tokenized. So, maybe like ... I don’t know. Well, this could get really deep, so I’ll leave it there, but I’m excited about hybrid equity tokens that aren’t just plain vanilla equity tokens. They could have use. They could have different functions, but also, getting deeper into how you now tokenize different assets and things on a company’s balance sheet.

Nikhil Kalghatgi:

I’m really intrigued by this idea. So, I know this is not the next phase. It’s probably the phase after that we’re talking about, but let’s allow our imaginations to run wild for a moment. Let’s say we get to second base, and there’s a tokenization, as Ayesha mentioned, of traditional assets, which I personally believe is what is going to drive traditional investors onto this entire platform, but then all of a sudden, you’re going to have tokenization of things that have never been securities previously. Right? They’re almost like sub-securities, elements of a balance sheet. What would be an example? Can you just enlighten us? Give us a few ideas of what that could look like. Is it programmable balance sheets, or is it something else that I can’t even imagine?

Harrison Hines:

I mean, I just think when you think about a token, it can represent anything. So, maybe it’s a business that has several business lines. You could tokenize those individual business lines if you want. Maybe if there’s a business line that needs a very capital-intensive investment into hardware or infrastructure, you could potentially just tokenize that underlying infrastructure or hardware, or some projects that are launching tokens early are doing things like rev share. So, maybe you don’t have to just get rev share in an entire company. Maybe you could start to break it down into individual business lines. So, if you just want to speculate that Google’s ad business is going to accelerate, you don’t really care about the other things they are doing, why couldn’t you tokenize just that? I think you can, and I think that’s where things will move eventually.

Nikhil Kalghatgi:

So, what do you think ... This goes for Ron in particular. What do you think it will take for traditional early stage investors like yourself and Ayesha, to an extent, to accept tokens and replace them instead of shares, to overcome, instead of just investing in both, just say, “You know what? We don’t even need shares anymore. We just want to do token investing”?

Ron Miller:

Well, we really believe that the existing regulatory scheme that is out there is fully capable of supporting the token issuance instead of the shares. Right? Ready to go now. That’s a really, really important thing. I think also that we’d be remiss here, Nikhil, if we didn’t really talk about, I think, the practical realities. A lot of times on these panels, I sometimes feel like sometimes we’re often talking in our own box. The biggest problem we have is lack of awareness. That’s the frustration, right? Without awareness of this new means of raising capital, we essentially are going to be stuck.

So, it’s less about the technical capabilities and more about where the market will finally accept these things, or at least know that there is such an opportunity, and I would tell you today where some ... When you look at the jobs act that was passed in 2012, and even today, I flew on an airplane last month with a guy sitting next to me. He was a computer engineer, graduated UCLA, works in The Valley, and he told me what he did. He asked what I did, and I said, “Well, I’m in the equity crowdfunding business.” He said, “Wow. That’s a really neat idea,” and I thought-

Ayesha Kiani:

Oh, god.

Ron Miller:

... where have you been? This is a guy working in The Valley, let alone ... So, my friends that I grew up with in Suburban Detroit, for example, if you go into the Midwest and you start talking about cryptocurrencies, they say, “What’s that?” Some of them never even heard of it. So, you have to keep in mind there’s this awareness thing, and I think that might be one of the biggest frustrations I have in looking at it, is that this what I call a getting ready thing. Right? So, as a founder, if you’re looking to raise capital in this way, it is absolutely essential that you find the way to do this and do this compliantly. That is critical, but that is completely insufficient.

What’s going to make the difference is whether or not you have a powerful message that you can take to the marketplace, and second, how are you going too distribute that message? Who are you going to talk to? A lot of people think just because you are compliantly prepared to issue, that that means you’ll be successful, and actually, I think that while that may have been true in 2017 with some of these ICOs just based on the hype, when you think about this broader market, to hit the T potential, the trillion-dollar potential, multi-trillion-dollar potential this industry represents, it’s going to be ...

People have to be aware, and it has to be more than just the 8% of the population that are accredited investors. We’ve got to figure out how we’re going to get the other 92%, and I think the key to that, by the way, is us early adopters doing so compliantly because we get ourselves in trouble in the early stages, it’s going to look a lot like last year where there were so many sort of issuances that maybe shouldn’t have happened that now sort of bear a bad name for the rest of us, so ...

Nikhil Kalghatgi:

So, raise your hand, audience and panelists, if you have considered tokenizing the equity of your business. There you go.

Greg Keough:

That’s quite a number of people. Right.

Nikhil Kalghatgi:

I know you have.

Ron Miller:

Oh, I have, too.

Greg Keough:

We’re doing it, yeah.

Nikhil Kalghatgi:

All right.

Ron Miller:

Yeah, we’re doing it, too.

Nikhil Kalghatgi:

You have?

Ron Miller:

Yes. We’re in the process.

Nikhil Kalghatgi:

You’re in the process, and you have considered, but you’ve not done it? Why have you not done it.

Harrison Hines:

I just believe that anyone who’s actually issuing a security token right now will not be able to remain in compliance.

Nikhil Kalghatgi:

Wow. Wow. So, you just called out several hands in the audience, including lovely Greg right next to you. Greg, can you-

Greg Keough:

Yeah. I don’t agree.

Ayesha Kiani:

Nikhil, so one thing I’ll just add to ... I’m so sure Ron is probably on the same end. We’ve seen from projects, and aside from Republic tokenizing itself or starting in token, we’ve seen so much demand for this that we recently had to come up. So, Republic’s debt agreement, which is our token DPA, our version of , we had to create an entire debt agreement called a safest being equity tokenized for companies to take a look into it, because this is becoming the next big thing. It is, and before, the project were most of just looking into the idea. Now they’re just directly approaching us, “Look. We want to issue equity. How can we do it using Republic,” and in the past one month alone, because our CEO is an attorney, I’m an attorney myself, and four of our other internal counsel team, one is sitting in the audience, had to come up with the agreement just to make sure that we can facilitate these sales going forward.

Greg Keough:

But that’s-

Nikhil Kalghatgi:

I want to give you the mike in a second. I just want to tee you up. Coming back to this point of no one is doing it compliant today, which is an astounding statement, I have to say, Greg, what’s the counter? You created your own standard. You--

Greg Keough:

Yeah. So, the counter is ... So, if you look at the initial skillset that was out there in the ICO market, you have nobody who had ever run a publicly traded company. There wasn’t the same skillset that you need to get this done. Right? So, before this, before I did this gig, I was a CEO for a joint venture between MasterCard and Telefónica running their global mobile financial services. So, basically, I reported up to two of the biggest publicly traded companies in the world, and my co-founder also was the head of regulation and compliance there, so he came, we founded Finova.

So, I think that you’re right. It is fraught with peril. I totally agree with that, and I’ll give you a great example. If you put in your document equity tokens to the SEC, you’re going to have a problem if you’re not calling them digital equity securities. So, there’s a lot of very fine nuances that, we’ve been doing this for about a year-and-a-half, building this out, that are there, that you need to do, that you also, by the way, you could have two approaches. You can do the ICO approach, which is I try to do it and see if I can get away with it, or you can actually go ... The way regulation is really done, when I was running the other gig, we wrote the mobile money laws in Peru. You meet with the regulators. You tell them, “Hey. I’m thinking of doing this. What do you think?” I think-

Ron Miller:

I think to Harrison’s point, what he said was that the down line compliance, not just the issuance being in compliance, but also, what does that mean to a founder who then tokenizes their company and raises capital? There’s CrowdCheck. Sara Hanks from CrowdCheck, she’s a highly, highly experienced securities lawyer, has one of the best reputations in the industry. 25,000 a year is about what she charges average fee for Reg A+ down line compliance, 25,000 a year. So, if somebody raises 10 million, five million, 25 million, whatever that number is, that 25,000 a year to get one of the best attorneys in the industry to assure down line compliance, so that doesn’t include the audit. Right?

You’re going to need an audit as well, but the legal work alone, and she’ll basically ... She’s going to say that legal work was done consistent with SEC rules, and so if you can off that for 25,000, I would never try it myself, and I think counter to what Harrison was saying, actually, it’s quite simple from a founder’s perspective. I would say, “Wow. 25,000 a year, and you make sure you get it right.” So, I do think that there’s potential to keep the down line compliance correct.

Greg Keough:

Well, one of these challenges with the documents and stuff going back to ... It’s the reason we did this whole JCO thing. Right? So, we’ve spent a lot of money-

Nikhil Kalghatgi:

What’s JCO again?

Greg Keough:

JCO, we termed it because at the beginning of last year we were working on this stuff, and we just didn’t want to be associated with ICOs, so we developed a new name for it called a jobs crypto offering, and the idea was how do you use regulatory framework that exists to both tokenize equity and then actually have it traded, and so I think that one of the things that came out of that was, one, we spent a lot of money on it, which is fine, but then we’re going actually opensource all these documents, and so we have Jeremy Gardner. He’s with us. He’s an investor advisor. We have David Namdar from Galaxy, et cetera, so the whole idea ...

So, because we’ve just all identified a complexity here, which is why should we all spend for the same legal documents a hundred times. So, these documents we’ve done, we plan to opensource once Finova ... It’s just those are the train tracks. Finova is merely a train, but we’d like other people, other trains to go down the tracks. So, we’ll be open sourcing those documents, which hopefully will mitigate a little bit the cost associated with somebody else looking to do this in a compliant manner, from a startup perspective.

Harrison Hines:

I would just say, well, a few things. So, I agree to the point where the market needs to be better educated, because it’s shocking to me that even most people who work in the industry don’t understand that tokens are different that cryptocurrency, and that there is different types of tokens. So, there was no framework. There was no regulatory guidance on how to issue and sell a utility token, which is a clear non-security. You wouldn’t follow securities framework to issue a utility token because it’s not a security, so you shouldn’t follow securities framework.

Now, for equity or security tokens, there is a very clear framework. It’s existed for years. Everyone knows how to use it. It’s very clear how you issue a security and how you deal with things like settlement with clearing, with custody. What constitutes good control? How do you deal with issues like a sheetment? How can you remain compliant if you are issuing a token to anonymous wallets and cannot keep track of the ownership of your security? You can’t today.

Ayesha Kiani:

But isn’t that where KYC and AML come in?

Harrison Hines:

Those aren’t built into the smart contracts for people today that are issuing equity tokens to people’s wallets. You cannot remain compliant.

Ayesha Kiani:

But then that’s today. We’re talking about two to three years down the-

Harrison Hines:

But I made a specific comment-

Nikhil Kalghatgi:

It was

Harrison Hines:

... that you cannot issue an equity token today and remain compliant.

Greg Keough:

But most of these agreements

Nikhil Kalghatgi:

This is exactly what I wanted everyone to see. The point is it’s influx, it’s changing, it’s really hard, really hard for issuers, really hard for buyers, and to Ron’s point, make sure you have good lawyers. It’s definitely needed. That is all the time that we have for right now. I just want to say thank you to the STA staff, the unsung heroes who are organizing a lot of this, Steve McKeon, the four panelists. Thank you so much. Let’s give them a round of applause.